Why You Should Let Rio Tinto plc Look After Your Money

Iron ore prce slumps as news comes of more job cuts at Rio Tinto plc (LON:RIO). Has one of the world’s biggest miners lost its mojo?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Rio Tinto

If you had any doubt about the size of Rio Tinto (LSE: RIO), just search for the company using Google. Not only will you find an incredible amount of news and information about the company, but you may notice that its central website is labelled “Rio Tinto: Global home”. The word global to me signifies enormous size and scope.

So is just being big good enough? Well yes in many ways it is, especially if you are chasing dividends. Big companies and dividend yield don’t always go together, but in this case they do (5 year dividend growth: 26 per cent, Bloomberg).

The downside to Rio Tinto is that the storm clouds are gathering. And we’re not just talking about a small storm cell. We could in fact be looking at a change in seasons.

What you need to know

Rio Tinto is the world’s second largest miner. It has assets right across the globe. Over the past 10-15 years it has been a major beneficiary of the Chinese-inspired commodities and resources boom. At one point it was your classic buy-and-forget stock. Its shares would simply keep rising and rising — especially between 2005 and 2008 (the height of the Australian resources boom). It was in just about every investor’s portfolio.

The crash came over the northern hemisphere summer of 2008/2009. Rio Tinto’s share price tumbled. It then recovered in 2010 and has been trading in a broad range ever since.

The market still likes Rio, but it’s lost its mojo.

Out of the cool group

In recent times Rio Tinto has suffered from some very predictable headlines. They include falling commodities prices, project closures, asset sales, and redundancies. As recently as last month The Guardian ran a piece on what Rio is leaving behind in Arnhem Land (Australia), after its decision to close its refinery on the remote Gove peninsula. One local was reported as saying Rio Tinto came in, destroyed their land, and gave them money for it. He said he didn’t want them to come back.

Then earlier this week Rio announced another 100 jobs would go from its Kestrel mine complex, north of Emerald, in Queensland.

The big picture

You see China’s still pulling the strings. Generally speaking, economic growth in China needs to be north of 7 per cent for Australia to avoid recession. Rio Tinto would also be affected in that potential downdraft. Currently China is growing at around 7.5 per cent and that rate is considered to be stable. Still, this week has seen the price of iron ore slump to a fresh five–year low (now fetching around $US85 per metric tonne). So only but the most bullish analysts are tipping great things for Rio, while the rest of the market are still happy with its dividends and relatively stable outlook.

The thing you have to accept with a stock like Rio Tinto is that its heyday is over. What’s left is a global mining giant trying to find a new place to rest. Mind you even mid-tier miners would struggle to keep up with Rio’s current resting pace.

Remember that you can’t invest in the stock market without taking on some level or risk. I suspect the downside risk to Rio (that has the potential to damage a portfolio) is that China’s economy starts to crack under the heavy weight of its debt (particularly local government debt).

Given how prudent the People’s Republic has been to date, I think it unlikely that China’s economy will buckle under the pressure. If you are willing to wear that risk, you’ll get an extremely large diversified mining company with strong dividends in return.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

David Taylor has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »